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ARTICLE: So You Want to Be a CEO?

Anyone with aspirations to be a CEO one day needs to hone their skills around four essential building blocks.

AT SOME POINT IN THEIR CAREERS, most — if not all — executives aspire to become the CEO of their organization. And why not? These individuals tend to be highly ambitious, not just for themselves but for their business — and increasingly, for society. However, as with most things in life, aspiration is one thing, and execution is another.

To increase your odds of becoming a viable candidate, you will need to evolve yourself in some dramatic ways. You might well be a successful CFO, Chief Marketing Officer or head of an important operating division with a solid track record of achievement. But such experience — while likely necessary to be considered — is not sufficient to make you ‘CEO material’.

Based on my 40 years of experience working closely with a wide variety of CEOs as a board member and chair, two major considerations demand attention from a board as it comes to terms with succession planning — and attention from would-be CEOs as they plan their careers:

THE CAREFUL DETERMINATION OF ‘WHAT THIS ORGANIZATION NEEDS NOW’.

Some companies might require a completely new direction. Just think of the challenges now facing General Electric. Others are trying to shift their focus. GlaxoSmithKline, for instance,recently transitioned to a consumer products CEO, Emma Walmsley, to succeed its pharma CEO, Sir Andrew Witty. Yet other companies might need radical cost cutting, as was the case at Canadian Pacific Railway before the late Hunter Harrison came on board.

RECOGNITION THAT THE JOB OF THE CEO IS SUBSTANTIALLY DIFFERENT FROM ANY OTHER JOB.

In my experience, the important differences in the CEO’s job are significantly under-appreciated by most boards — and they should be top of mind for any CEO aspirant. Indeed, these elements of the role provide a sort of developmental template for the would-be CEO. Four ‘directional’ responsibilities make this role substantially different from any other C-suite job:

Upwards: CEOs assume total responsibility upwards, to the board of directors and/or to the founder or the family owner. Therefore, every CEO is also the Chief Relationship Officer (CRO).

Downwards: CEOs make key resource allocation decisions downwards with respect to capital allocation in all its forms.

Therefore, every CEO is also a Chief Strategy Officer (CSO).

Outwards: CEOs communicate outwards to their stakeholders and the public at large as the company’s persona, which means the CEO is also the organization’s Chief Communications Officer (CCO).

Outwards-In: CEOs are responsible for bringing external insights about their industry and business(es) inwards to the company. As a result, the initials CEO could also stand for Chief External Officer.

Whatever the pressing corporate needs may be as perceived by the board, every CEO candidate needs to become an expert at each of these four responsibilities. Let’s take a closer look at each.

1. Upwards Responsibility (Chief Relationship Officer)

The CEO of a publicly-traded firm, family-owned company or non-profit enterprise is the individual who ultimately links the operations of the business to the Board of Directors, the family and/or the founder. He or she has the ultimate responsibility for building bridges across what can often be wide chasms. Think of the Grand Canyon — some 20 miles across from rim to rim and a mile deep; on one side you have the management team led by the CEO. This group of C-suite executives likely invests 3,000 hours a year at their jobs and is also likely to have a lifetime of experience in their chosen industry. On the other side, in the case of a widely-held, publicly-traded company, you have the board of directors, who might spend 250 to 300 hours per year at their tasks — a small fraction of the C-suite team (eight to ten percent of the time commitment).

While generally successful as business leaders, directors often have no direct knowledge — prior to becoming a director — of the company or the industry in which it competes. They are also likely engaged in many other activities, so gaining their attention can be a challenge. Getting across this ‘information chasm’ is a critical challenge if the board is going to add any value — and it is the CEO’s challenge.

Achieving this will depend upon the CEO building a strong set of open and transparent relationships with all the key players. In a family-company setting, the founders and heirs must all trust the CEO completely, as they have entrusted unto him/her nothing less than the family legacy. In a publicly-traded corporation, the CEO must build a similar set of relationships with the board chair and to a meaningful but lesser extent, with each of the directors. A CEO who is unable to build strong bonds with these individuals will more than likely fail and be replaced.

Assuming normal operating conditions and no extraordinary stresses, a CEO is likely to have to invest at least 20 percent of his/her time working with the Board of Directors. This is a considerable time investment, and one with its own unique characteristics for success. The CEO must regard the board chair/ founder/family leader as his or her most important relationship — period. Nothing should be held back or disguised. Everything must be communicated in an open and completely transparent manner.

In addition, the CEO — along with his/her senior-team colleagues — must organize and manage the operations of the committees of the Board. In most public companies there are at least three such committees: audit, HR/compensation and governance — but there are often many more.

ATTRIBUTES REQUIRED:

The attributes required to succeed in the Chief Relationship Officer role include a high level of emotional intelligence (EQ) and the ability to trust your board colleagues. You have to know when it is time to listen; understand what you hear; and then act where you deem appropriate. Also, use your judgment to ignore what you deem not to be as important. This type of judgment — knowing when to act and when to remain quiet — will be a critical determinant of your success in communicating upwards.

One recently retired CEO of a widely held, publicly-traded corporation told me: “This is tricky territory, because it is a balance between a willingness to absorb and perhaps then act on directors’ insights and the ability to resist weak arguments and unsubstantiated perspectives. Directors often fly at 25,000 feet, while the business is run on the ground.”

HOW TO GET THE EXPERIENCE:

To gain this experience, every would- be CEO should seek experience on a board of directors. The type of organization is less important than the position itself, but ideally, to become a viable candidate for CEO in a publicly-traded corporation, you should attempt to get on another publicly-traded board. Most companies will allow their senior executives to sit on one other publicly-traded corporation as long as it is not a competitor of any kind.

At the very least, the aspirant CEO should join a not-for- profit board in an area of endeavour that he/she cares deeply about. Experience on the other side of the boardroom table will prove to be invaluable.

It is also the virtually unanimous opinion of sitting CEOs that a mentor is a huge benefit. Try to find someone with experience in the aforementioned boardroom trade-offs who has perspective and wisdom; and someone with whom the CEO shares the firm’s most delicate-yet-challenging pressures.

2. Downwards Responsibility (Chief Strategic Officer)

In addition to upwards responsibilities, the CEO is the chief strategist for his/her company. As they say, ‘The buck stops here’. He/she must understand the critical value drivers of the business and each of its segments, and thoroughly grasp the competitive environment. Only then can intelligent decisions be made about capital and talent allocation.

Capital allocation is particularly critical. In the recent McKinsey-authored book Strategy Beyond the Hockey Stick: People, Probabilities and Big Moves to Beat the Odds by Chris Bradley, Martin Hirt and Sven Smit, the authors clearly prove that dramatic changes in capital allocation are significantly under-appreciated in most businesses. Further, putting people into positions where they can demonstrate these capabilities and build up their strengths is just as important as the capital allocation decisions themselves. The CEO leads and ultimately decides on these two critical allocation decisions — which will determine the future of the company. This is a profound and vital responsibility.

ATTRIBUTES REQUIRED:

Making effective resource-allocation decisions requires proven business judgment and an ability to ‘see around corners’ to anticipate what is coming next. There are hundreds of books about strategy and many consultants to help with strategy formulation and cultural renewal. However, at the end of the day, the final assignment of talent and cash rests with the CEO. Hopefully, candidates will have had experience with both strategic ‘brakes’ and ‘accelerators’ — i.e. failure and ramping up.

HOW TO GET THE EXPERIENCE:

It will be necessary to have line experience in making these types of allocations. Approximately 45 percent of CEO selections are people with a background in operations. A C-suite position in finance (25 per cent) or sales and marketing (20 per cent) can also provide the needed exposure, as CEO-type actions can be appraised, evaluated and learned from. One former CEO advised a group of senior aspirants from other companies: “Get to be a truly global expert at something. Have some specific knowledge base that has been acquired over time that makes you a global guru.” Put simply, watch, absorb, learn, then act.

3. Outwards Responsibility (Chief Communications Officer)

In many ways, becoming the external persona of a company is the easiest part of the CEO’s job. Doing this well involves talking to stakeholders on a regular basis, listening carefully and hearing them clearly — all skills that are reasonably easy to acquire and develop. The CEO must work with key shareholders and analysts to explain the company’s progress, its future directions and its plans to achieve them. In addition, he/she must understand the concerns and interests of growing communities of stakeholders. In the age of social media, previously ignored groups of stakeholders are becoming increasingly important to maintaining a ‘social licence to operate’. Indeed, given how fragile the licence to operate has become, some companies now refer to it as a social privilege to operate.

ATTRIBUTES REQUIRED:

A high degree of emotional intelligence, an ability to listen carefully and understand fully. Also required: stamina and discipline. Dominic Barton, the recently retired leader of McKinsey, made it his business to meet with at least two CEOs per day, 50 weeks of the year, for each of his nine years in office. Elsewhere, the recently retired CEO of a large publicly- traded financial institution visited 200 investors per year globally, regularly met with the heads of all the compliance agencies and visited widely with other stakeholder groups. In total, this CEO invested some 25 percent of the working year in such external meetings.

HOW TO GET THE EXPERIENCE:

The mantra here is practise, practise, practise. As CEO, your time investment decisions will be the most important investment decisions you will make. Peter Drucker captured this precept many years ago when he wrote: “If you can’t manage your own time, you can’t manage anything.”

4. Outwards-In Responsibility (Chief External Officer)

A.G. Lafley, the former CEO of Procter & Gamble, literally translated his designation as CEO into Chief External Officer. He once said: “I have a dozen executives who run multibillion-dollar global businesses and I am unlikely to help them improve their performance. My job is to understand what is happening outside of this company and make judgments as to when we should move to make changes inside to respond to external realities.”

It is a truism today that the ability to handle disruptive change is of ever-increasing importance. We all know that no company will survive for long without responding to and adapting to externalities. There are many examples of this, but think of Amazon in retailing or Uber in the taxi business. It would have been correct for all boards of directors in these industries to make the assumption that their business would be radically transformed over the next three to five years.

ATTRIBUTES REQUIRED:

A passionate curiosity and relentlessly inquisitive mind are the hallmarks of success in interpreting the changes going on around the globe. Making judgments on such ‘fuzzy’ matters requires a mental ability to synthesize vast amounts of data in order to discern patterns that could potentially change the competitive dynamics of an industry. One CEO described this attribute to me as an ability to ‘graze’ a wide variety of news sources daily. He concluded: “By grazing across a spectrum of sources, different perspectives on common issues were easier to comprehend and ultimately act upon.”

Making judgments on ‘fuzzy’ matters requires not only a passionate curiosity, but an ability to cope with uncertainty. When to act, how to act and with what level of commitment are all wide-open variables. At the end of the day, it will be the CEO’s judgment that will determine the actions needed, the intensity of such actions and the organization of the actions. Withholding judgment until directions are sufficiently clear is a critical attribute of a competent CEO mind.

HOW TO GET THE EXPERIENCE:

To gain experience and improve judgment in such matters, aspiring CEOs should become keen students of disruptive change and closely study the examples around them. In a dramatically changing world, there are no guaranteed answers. There are only tests, trials and experiments. One Silicon Valley mantra that should be held closely by all leaders is ‘Fail fast, fail often, fail forward.’ Gaining experience in this domain

is not easy, but it is critical for the would-be CEO. Ask yourself this question regularly: Have you increased your propensity for risk-taking within your own operation today — in cases where you will bear the consequences of those risks?

Ginni Rometty, the CEO of IBM, has changed her evaluatory metrics for senior executives to include the following:

What lessons did you learn this year?

How were those lessons learned? Were any learned from failure?

What is your learning plan for the coming year?

This is not about failure that counts against you. The focus is on building agility. This is why the word ‘pivot’ has become a new managerial mantra — as in, ‘We were going northwest, but now we are pivoting to head southeast’.

To be effective, you must also be reflective. All aspiring CEOs should allocate at least 10 percent of their time — some 300 hours per year or six hours per week — to reflection. At least half of this investment should be made in learning about externalities that might seem distant but could become relevant.

In closing For middle and senior managers with aspirations to reach the C-suite one day, paying close attention to the four requirements discussed herein will help to pave the way to this much-desired leadership position and increase the odds of success.

For boards seeking to ensure that there are competent and capable succession candidates in their companies, a much greater time investment in succession planning is needed. One estimate is that boards invest only five per cent of their time in top management succession planning; if true, this is totally inadequate, given that the next CEO is highly likely to come from within. A Harvard Business Review assessment of the best

100 companies out of a global sample of 1,200 showed that an amazing 86 CEOs came from within the company. The same analysis two years later showed essentially the same result: 81 out of 100 had been promoted from within.

To increase the odds of successful succession, boards must take the lead in transforming their mid-level executives into CEO-ready candidates by investing significantly more of their time and attention in mentoring their promising leaders. And as indicated, these potential leaders must invest much more of their time reflecting on the four CEO leadership dimensions and their true capabilities to be high-potential successors.

David Beatty is an adjunct professor and Conway chair of the Clarkson Centre for Business Ethics and Board Effectiveness at the Rotman School of Management and a senior adviser to McKinsey. Over his career, he has served on more than 39 boards of directors and been chair of nine publicly traded companies. He was the founding managing director of the Canadian Coalition for Good Governance (2003 to 2008). A version of this article will also appear in the Winter 2017 edition of Rotman Management, published by the University of Toronto’s Rotman School of Management.